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SAN FRANCISCO — Twitter has built a digital town square that’s teeming with activity but riddled
with financial potholes. Seven years after co-founder Jack Dorsey sent the first tweet through the
online messaging service, more than 500 million posts are shared each day by everyone from the
Dalai Lama to Justin Bieber.

But all the chirping hasn’t translated into profits — nor is it expected to any time soon.

As Twitter prepares to complete its initial public offering of stock this week, the San
Francisco company’s history of losses totaling nearly $500 million is raising questions about its
ability to turn a cultural phenomenon into a sustainable business.

Twitter’s IPO promises to be another touchstone in the Internet’s evolution from a geeky
backwater to a wellspring of world-changing innovation and jaw-dropping wealth. In that sense, the
company’s stock market debut shares parallels with the IPOs of two rivals: online social-networking
leader Facebook Inc., which went public nearly 18 months ago, and search-engine leader Google Inc.,
which made the leap to Wall Street in 2004.

But Facebook and Google were already profitable by the time they went public. By contrast,
Twitter’s coming out is a throwback to the late 1990s, a more perilous time in Internet investing
when hundreds of dot-com companies completed IPOs without ever having earned a profit.

“They have a nice and interesting base to build upon, but an exciting business with lots of
users doesn’t necessarily generate returns,” said James Gellert, CEO of Rapid Ratings, a
subscription service that examines the financial health of companies.

Rapid Ratings gives Twitter’s financial fitness a rating of 19 on a scale of 100. Gellert said
that puts Twitter in a category of companies with a failure rate of about 90 percent. By
comparison, the firm rated Facebook at 73 just before its May 2012 IPO and Google at 80 ahead of
its August 2004 offering.

With 232 million users and an IPO poised to draw as much as $2 billion, Twitter is unlikely to
go bust like so many of the companies that disappeared after the dot-com bubble burst in 2000. So
many investors are optimistic about the company’s future that Twitter seized on the demand for its
stock yesterday and raised the projected price range of its IPO to $23 to $25 per share, up from an
earlier target of $17 to $20.

Despite that enthusiasm, Twitter faces hurdles that range from an outsize proportion of
international users, who generate less revenue than their U.S. counterparts, to concerns about a
slowing rate of growth at a time when its user base is less than a quarter of Facebook’s.

Although they both compete for people’s attention and posts, Twitter and Facebook work
differently.

Facebook gives its users control over who’s in their social circle and which of their online
friends can see specific posts. Twitter is set up so users can “follow” anyone — whether it’s a
celebrity, politician, sports star or a pithy teenager — who also has an account on the service.
This flexibility makes Twitter like an open book that can be read by anyone. Unlike Facebook,
Twitter restricts each post on its service to no more than 140 characters.

Twitter’s openness has left the service with a bit of an identity problem. While Facebook is
known as a way to connect with friends and family and LinkedIn is the go-to place for exploring
career opportunities, Twitter’s purpose is more difficult to define, said Scott Kessler, an analyst
with S&P Capital IQ.

In its IPO paperwork, Twitter highlights the simplicity, accessibility and spontaneity of its
service and depicts it as one big conversation. Gartner analyst Brian Blau thinks that many people
see it as a “giant party line,” or a telephone line that was shared by multiple subscribers, often
in rural areas, long before Twitter.